While there are reporting requirements on your tax return due April 15 regarding your RMDs, the deadlines for taking these distributions out of your account have two other particular deadlines. By April 15th and beyond, you have already missed both deadlines for the prior year’s RMD, but you can act quickly to minimize any potential penalties. Here’s what to know. You can also consult a financial advisor for professional guidance.
What Are RMDS?
Required minimum distributions, or “RMDs,” are a minimum amount that you must withdraw each year from every pre-tax portfolio that you hold. This does not apply to Roth portfolios or taxed investments, and it applies to every pre-tax portfolio independently. So, for example, if you hold a 401(k) and an IRA you would need to take a separate required minimum withdrawal from each.
If you hold multiple IRA portfolios, you are allowed to collectively consider them a single, combined, IRA. This allows you to take your full IRA required minimum distribution from a single account.
The purpose of required minimum distributions is to ensure that you pay taxes on the money in your pre-tax retirement accounts. By requiring a withdrawal the RMD triggers a tax event, which is how the IRS makes sure you eventually pay income taxes on the money in your pre-tax portfolios. The full value of each withdrawal will count toward your taxable income for the year.
Required minimum distributions for each year are calculated based on two factors: your age and your account balance as of December 31 of the previous year. The IRS publishes a table called the Uniform Lifetime Table. To calculate your RMD, you look up your age on this table. For each age, there is a value. You divide your account balance by the value on the Uniform Lifetime Table, and that’s the amount you must withdraw this year. For example, say that at end of day on December 31 of last year, you were 80 years old with $1 million in your 401(k). The Uniform Lifetime Table value for age 80 is 20.2, so you would calculate your RMD as:
- $1 million / 20.2 = $49,504
When Do You Take RMDs?
You must start taking required minimum distributions in the year that you reach your eligibility age. This age varies based on when you were born. Broadly, at time of writing the eligibility ages are:
- 70.5 if you turned age 70.5 in 2019 or earlier
- 72 if you turned age 72 between 2020 and 2022
- 73 if you turn(ed) age 73 between 2023 and 2032
- 75 if you turn age 75 in 2033 or later
At time of writing, eligibility starts at 73. If you turn 73 at any time in 2025, you must begin to take RMDs this year. If you are older than 73 in 2025, then required minimum distributions have already applied to you.
Your deadline to withdraw a required minimum distribution also depends on your age.
In the first year that you are eligible for required minimum distributions, you have until end of day April 1 on the following year to take out your entire required amount. In this case, “entire required amount” means the pro rata amount based on when you became eligible. So, for example, if you turn 73 in 2025, then you must take that year’s minimum withdrawal in full by April 1, 2026.
For all other years, you have until end of day on December 31 on that year to take out your entire required amount. So, for example, if you turn 73 in 2025, then you will be eligible for RMDs for all of 2026. You must take your 2026 minimum withdrawal in full by December 31, 2026.
There is no eligibility category that gives you until April 15 to take out an RMD. At this point, you are either two weeks or several months overdue.
You can take out your minimum distributions at any time, in any amount, so long as the full value has been withdrawn by the deadline. For example, some households take out their minimum distributions as regular monthly or bi-weekly withdrawals, to generate a stable source of income. Other households leave their money in place as long as possible, until either December 31 or April 1, to maximize that portfolio’s growth.
There are many legitimate reasons to leave your money in place, whether to ride out a bear market or to maximize growth (as noted above). However, if you do wait to take your RMDs, make sure to anticipate any order or transaction processing times so you don’t accidentally miss the deadline while your sale and withdrawal is processing.
RMD Confusion and Cures
There is often significant confusion around when individuals must take their RMDs.
This is in part because the rules around required minimum distributions have changed recently, with the passage of the SECURE Act and the SECURE 2.0 Act. These two laws updated many elements of the retirement system, including changing eligibility ages and penalties for required minimum distributions. It is also in part because the RMD system can be inherently confusing, and many people don’t entirely know about this requirement.
Often, households take their required minimum distributions by default. If your RMD is less than your income requirements, you will likely satisfy this rule without even thinking about it. However, required minimum distributions can become a particular problem for households with multiple retirement accounts. In those cases, people often like to withdraw money from one account at a time, to maximize the compound gains of the rest of their portfolios. This is a generally sound approach to investing, but it can create problems if you don’t know to take out minimum withdrawals each year.
If you do fail to take a minimum distribution, the standard penalty is 25% of the value of the amount not taken. For example, say that you under-withdrew your account by $1,000. The penalty would be $250. This is reduced from the previous penalty of 50%, which was changed in the SECURE Acts.
You can reduce this penalty by taking the withdrawal as quickly as possible, then filing Form 5329 with the IRS. In this form, you can inform the IRS that the mistake has been corrected. Under ordinary circumstances the IRS can then reduce your penalty to 10%. If the tax agency believes that your error was due to good faith error, misunderstanding or miscalculation, it has the authority to waive penalties altogether.
Do not wait any longer: If you have not taken your required minimum distributions for 2024, do so now, as the deadline has passed regardless of your age. Then, make sure to file Form 5329 to alert the IRS to the mistake and its correction. Consider the exact circumstances of your error, and present your best case for good faith misunderstanding to the agency. They will likely work with you to reduce any penalties, and you can make sure to avoid them going forward.
Remember, you can use this free tool to match with fiduciary financial advisors to discuss your circumstances.
The Bottom Line
You must take out your required minimum distribution by December 31. The only exception to this is the year in which you first become eligible for RMDs, when you can delay taking your minimum withdrawals until April 1 of the following year. There are no years when you can wait until April 15.
Tips
- When should you take out your required minimum distribution? Taking your assets out earlier can help you avoid timing concerns, and might let you maximize capital gains vs. income taxes if you keep these assets invested. Taking your RMD later might let you maximize your portfolio’s long-term growth. Here’s how to think about it.
- A financial advisor can help you build a comprehensive retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid — in an account that isn’t at risk of significant fluctuation like the stock market. The tradeoff is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.
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